As Greece leaders meet to avert new elections, fears have been reinforced that the country is firmly on the path to bankruptcy and an exit from the Euro, a political currency that may see its own end soon.
The radical left-wing coalition leader, Alexis Tsipras, has declined an invitation by the Greek president to try to form an emergency government. Italy faces greater debt and contraction under strict austerity constraints under Euro regulations. Ireland faces a May 21 referendum asking the public to approve an EU treaty that aims to control nations’ annual deficits and longer-term debts, but the treaty ignores the competing need to stimulate growth and is now facing an increasingly euroskeptical populace. Combined with Hollande’s far-left victory as France’s president and the ultra-left rise in Greece’s parliamentary elections, the events could force the European supranational entity to shift in favor of less austerity measures and greater investment in growth. Even if the fiscal treaty is ratified by the minimum 12 nations required, it is likely to be an economic dead letter before it comes into force next year. Its key goal is to bring deficit limits under the threat of ECB fines. Once again, the main proponent is Chancellor Merkel and her CDU party. Nevertheless, Merkel’s previously sound support structure seems to be cracking as the CDU party faced a heavy state election defeat in Germany’s most populous region. With Britain disconnected from the EU and the major founders of the currency in turmoil, the future of the political currency seems rather bleak. The EU powers that be, predominantly in Germany, remain in public denial about the real underlying reasons for the Eurozone crisis: the fault design of the Euro common currency, with no central coordination of debt funding. The only solutions will require Chancellor Merkel and her uneasy electorate to accept the need for national debts to become European property, further imposition of supranational regulations into the independent banks and sovereign governments.
“We have to stay in the Euro. I’ve lived the poverty of the Drachma and don’t want to go back. Never! God help us. They must cooperate or we’ll be destroyed, it will be chaos. For once, they must care about us and not their chair.” – Maria Kampitsi, 70-year old Greek pensioner
In the 1990s, the continent’s political leaders believed that the division of a continent that so often torn by war were of the past, and that a single currency would bind the continent into a union. Today, with Greek on the brink of bankruptcy – and Ireland, Italy and France deep in debt – Europe’s fiscal experiment faces extinction. The problems of the past have come surging back, but even though talk about what’s wrong with the Euro focuses on complex matters such as national debt ratios, labor market reforms and pension protections, one fundamental problem is, comically, blaming Adolf Hitler. After the fall of the Berlin Wall, a newly unified Germany was bent on leaving behind its recent division and the dark days of two World Wars. Germany had to make sure the rest of Europe was aware of its peaceful intentions, thus it seemed agreeable to bind its own success with those of its neighbors. Germany and France, the drivers of the Euro projects, pushed to be as inclusive as possible despite the evident risks. Now, Germany recent leadership in strict fiscal measures and regulations has revived thoughts of Germany’s intentions of domination. Nevertheless, the regulations initially installed by the supranational body were as strict, if not stricter, than what is being demanded now. The rules then, were strict and clear but were not adhered to. The requirement was that no Nation must carry debt greater than 60% of their gross domestic product. Now, Greece’s deb ratio is 165%, Italy’s is 120% and Ireland’s is 107%. Even the powerhouses of France and Germany are above 80%.
“The first cut has released all the old demons. We’re back to calling the Greeks lacy, the Italians shady, the British disconnected, and the German bent on domination. It didn’t take long, did it?” – Richard Whitman, University of Kent in England
Coincidentally, the general entrance of Greece into the EU was based on falsified reports that spoke of its adherence to the fiscal requirements, meanwhile Greece’s economic situation then was already violating the GDP ratio. It was also widely known that the Greek government had a reputation for not collecting taxes – $65 billion in back taxes are outstanding – and overall, Europeans regarded its economy as a mess. Nonetheless, Greece was the birthplace of democracy, home to the Acropolis, the cradle of European civilization. Greece’s entrance was sentimental and symbolic at best. Greece is and was an extreme example of the problems facing the EU, but in general, the problem lies rooted in the fact that while sharing a single currency, individual nations would continue to handle their own tax and pension programs. Thus, local issues superseded those of the Euro zone needs. Like the decision concerning Greece’s entrance, many were largely political. In 1998, Dutch officials warned Germany of the consequences of Italy’s entrance without further fiscal measures for regulation. The officials were not willing to have Italy enter the union To the Germans, no Rome equated to no Paris, which was not possible. Another problem of the single currency is the polarity represented by the different economies. The European Central Bank was established to regulate the common currency, to ensure that the currency could serve a booming Germany economy and a tanking Greek one. It has to keep interest rates low to spur borrowing and growth in the south, while keeping rates high enough to avoid inflation in the north.
“The French even under Sarkozy had great reservations about Merkel’s focus on austerity, but they went along with it in hope they could extract concessions in return. With Sarkozy gone, Germany will be increasingly isolated. Germany will eventually weaken its positions” – Simon Tilford, chief economist at the Centre for European Reform in London
In retrospect, the EU is facing a critical challenge to its solidity that is not only represented by the fiscal crisis, but also a growing Euroskeptic populace and a continent-wide political shift towards the ultra-left. The flexible and ambiguous political decisions of the past that transformed the European community into a fiscal union must be done away with, and the nations most congregate to form a more perfect union that is monitored on every aspect by some supranational entity. A total solution would involve a single fiscal policy but that would only constitute one part. A total solution would have to address the inequities between national economies.